As we have covered previously, one of the most noticeable trends that has emerged in the current boom in UK public M&A activity[1] is the heightened level of target shareholder opposition to bids. This is manifesting itself in a number of ways, including through increased and novel “bumpitrage”[2] campaigns as well as through institutional investors becoming more vocal in expressing their discontent at proposed bids. There appears to be a general feeling among a number of the largest UK institutional investors that private equity are acquiring UK public companies “too cheaply”.
Historically, the key negotiating ground in UK public bids has been with the target board before the public announcement of a firm bid. Once the bidder has reached agreement on price with the target board and obtained its recommendation, this has typically been sufficient to deliver a successful deal in the vast majority of cases, absent an intervention from an activist shareholder or competing bidder.
In the current environment, bidders need to assume that shareholders will be prepared to actively resist bids that they believe undervalue the target, even where the bidder has secured the support of the target board (which itself is becoming a more protracted and difficult process).[3] Depending on the extent of the opposition, bidders are increasingly needing to engage in post-announcement negotiations on price with significant target shareholders.
These tactics appear to be paying off, with three bidders in the last two weeks announcing increased offers in response to shareholder objections, notwithstanding that their initial offers were recommended by the relevant target boards:
- on 24 June, an affiliate of Blackstone increased its offer for St Modwen Properties PLC from 542 to 560 pence per share;
- on 29 June, an affiliate of Clayton, Dubilier & Rice increased its offer for UDG Healthcare PLC from 1,023 to 1,080 pence per share; and
- on 5 July, Ramsay Healthcare increased its offer for Spire Healthcare Group PLC from 240 to 250 pence per share.
In each case, the bidder’s increased offer was stated to be “final”. Under the Takeover Code, these “no increase” statements are binding and therefore prevent the bidder from subsequently further increasing its bid (typically unless a new competing bidder emerges). Declaring an offer “final” therefore sends a strong signal to shareholders that price negotiations have now ended and – absent a competing bidder emerging – shareholders will either need to support the final offer or see the deal fail. Similar tactics have been used in the past to fend off “bumpitrage” campaigns by activist shareholders.
[1] See: UK Bids: Why the ‘Reopening Trade’ May Result in a Flurry of Activity Particularly for Domestically Focused FTSE 250 Companies
[2] See: UK Bid Activism – Two Recent Examples of Disclosure and Fairness Objections in Schemes of Arrangement
[3] Another noticeable trend in the current environment has been the protracted and difficult negotiations with target boards with bidders increasingly having to make 5 or more private offers in order to secure the target board recommendation. See: Part 1 (Disagreements on Value) in Private Equity Targets UK PLC Despite Rising Deal Complexity